Discuss the validity of given arguments

Assignment Help Microeconomics

Reference no: EM13897666

"Keynes argued that wage stickiness was probably a good thing, that wage and price ?exibility could easily be destructive of real economic stability. His reasoning went like this. In a monetary economy, the nominal interest rate cannot be negative. Hence the real interest rate must be at least equal to the rate of de?ation.

If wages and prices were to fall freely after a contractionary shock, the real interest rate would become very large at just the wrong time, with adverse effects on investment. The induced secondary contraction would only worsen the situation." (Solow, 1980). Discuss the validity of these arguments. Do they apply also to the modern classical model?

Reference no: EM13897666

Questions Cloud

Does this statement hold in the new keynesian model : Does this statement hold in the de?cient-demand Keynesian model for a negative shock to (i) aggregate demand and (ii) aggregate labor productivity?

Compute the probability that the peso will devalue= : Assume that if the peso were to depreciate, investors figure it will depreciate by 25%. Compute the probability that the peso will devalue and the probability that there will be a default.

Network topology design for abc : Network topology diagram and the domains of trust and security-related assumptions in your design and security policy to make this assumption valid.

How human service professionals are involved in working : Describe how human service professionals are involved in working with this population or in the practice setting. Describe the current services that are available (locally in the Houston, Texas) to address the issue

Discuss the validity of given arguments : "Keynes argued that wage stickiness was probably a good thing, that wage and price ?exibility could easily be destructive of real economic stability. His reasoning went like this. In a monetary economy, the nominal interest rate cannot be neg..

Summary of the symptoms of the disorder you chose : Summary of the symptoms of the disorder you chose. Include the brain area(s) responsible for the disorder, and common problems that people with such damage have. Explain what everyday life would be like for an individual with the disorder, includi..

Have keynesians contributed anything keynes general theory : Does the modern classical approach provide an adequate analysis of the economic conditions in recessions and depressions, or does the profession still need the Keynesian approaches for its analysis?

Reliability and validity matrix : Reliability and Validity Matrix - For each of the tests of reliability and validity listed on the matrix, prepare a 50 word description of the test's application

Develop robust systems diagrams that capture the system : Develop robust systems diagrams that capture the system behaviors

User Account

All Pages